Government Bounce Back Loan for your small business

Everything you need to know about the Covid Bounce Back Loan Scheme – what it is, who offers them, and how much it will cost your small business to take out a loan.

What is the latest Bounce Back Loan news?

The Government launched the Bounce Back Loan Scheme (BBLS) on May 4 2020 to help small and microbusinesses get through the coronavirus pandemic.

Your small business can borrow a sum equivalent to up to 25 per cent of turnover, capped at £50,000 per business.

The Government will cover the first year of interest payments, meaning you have to repay the rest of the loan yourself. Interest is fixed at 2.5 per cent per annum.

Because the Government Bounce Back Loan is unsecured debt, this means the 29 accredited lenders including the high-street banks cannot ask you for personal guarantees. This means the lender cannot come after your house or personal vehicle if you default.

However, the Government Bounce Back Loan must be repaid and is not a grant.

When does the Bounce Back Loan end?

The Government Bounce Back Loan Scheme (BBLS) is due to expire on March 31.

Am I eligible for a Bounce Back Loan?

Most businesses with some exceptions can apply for a Bounce Back Loan provided they were properly trading before March 1 2020.

You must not have taken out any other form of Government Covid-19 financial support, such as a loan through the Coronavirus Business Interruption Loan Scheme (CBILS).

What can I use the Bounce Back Loan for?

You can only use the loan for the benefit of the business and not for your personal expenditure or other purposes.

However, some lenders allow you to use your Government Bounce Back Loan to repay existing finance.

What fees and interest will I be charged?

The Government has set the interest rate for this facility at 2.5 per cent per annum. This is far cheaper than a typical personal loan.

Lenders are not permitted to charge any fees.

How long do I have to repay my loan?

 Originally, loans under the Bounce Back Loan Scheme were available over a fixed six-year term.

As of November 2020, this can be extended for up to 10 years with prior arrangement with your lender.

How do I apply for a Covid Bounce Back Loan?

Currently, only Starling Bank is accepting Bounce Back Loan applications from new customers. Every other bank has closed its doors, only accepting Bounce Back Loan applications from existing personal account holders.

Once you have chosen your lender from this list here, you will have to fill out a short online form self-certifying your business. There are no credit checks.

In some instances, the lender may ask you for additional information, such as an HMRC self-assessment tax return. Applications from eligible borrowers will be subject to customer fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks.

Bounce Back Loan calculator

You can find a Bounce Back Loan calculator to work out what your monthly interest and capital paydown repayments will be here. You start paying interest in month 13 and your monthly payments will go down as the amount you borrowed is chipped away.

Can I top up how much I borrow?

Yes, you can – provided you did not originally apply for the maximum 25 per cent of turnover capped at £50,000 in the first place.

But interest will kick in from 12 months, so it’s mainly an option for anyone who’s struggling financially. This is because the earlier you start paying it off, the less interest you’ll pay.

Your top-up loan involves an additional application and will be added to your total Bounce Back Loan amount.

The minimum top up is £1,000.

When do I have to start repayments?

The Government covers interest payable to the lender for the first 12 months from the date when your original loan is drawn down. You will then need to make full repayments – the loan and any interest – up to the end of the six-year term, as per your Bounce Back Loan facility with your lender.

Your lender will get in touch with you about repayments three months before they’re due to start. This means they’ll contact you nine months after you first drew down the loan.

How long do I have to wait for a decision?

Your Bounce Back Loan should hit your account within a few days of acceptance. However, anecdotally some customers have had to wait months for their applications to be processed.

Can I repay my loan early?

Full early repayment is permitted at any stage, without early repayment fees.

Some lenders allow part repayment and others overpayment, so you can pay off your Bounce Back Loan earlier than scheduled.

What if I need longer to start paying off my loan?

Under the Government’s Pay As You Grow option, you can extend the period before you need to start paying Bounce Back Loan interest by a further six months. This means you’ll have 18 months before you start repayment. But interest is charged from month 12, so you will end up paying more in the end.

You can also make interest-only payments for six months, with the option to use this up to three times throughout the term of the loan.

And you can also extend your loan period beyond the standard six years to 10. The Government says this could cut monthly repayments by almost half, but you will end up paying more 2.5 per cent interest.

In addition, you can ask for a six-month repayment holiday once during the term of the loan.

What happens if I can’t pay back my Bounce Back Loan?

Because a Bounce Back Loan is unsecured bank, the bank or other lender cannot seize your house or your car as repayment. However, the bank is entitled to use a debt collection agency, which could involve unpleasant letters and even visits from bailiffs.

However, if your company officially goes into liquidation, the Bounce Back Loan stays with the insolvent company. This means that you and other director shareholders are protected from having your assets seized for repayment.

On the other hand, you could still face criminal charges if the liquidator discovers you have knowingly misused Bounce Back Loan funds.

You can find out more about what happens if you need longer to repay your Bounce Back Loan or your company goes bust here.

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Tim Adler

Tim Adler is group editor of Small Business, Growth Business and Information Age. He is a former commissioning editor at the Daily Telegraph, who has written for the Financial Times, The Times and the...